With strikes blighting the transport industry around the world just as passengers return to foreign travel, the issue of executive pay has once again been thrust into the spotlight. UK union leaders have used IAG CEO Luis Gallego’s proposed pay increase as a reason for a strike by airport workers (see Europe, Airports news section below). In the US, airline CEOs are also hiking their pay as the companies return to positive revenue and even profits after the pandemic. The pay rises are red flags to unions and workers in an inflationary environment and while passengers are busy on social media aghast at the poor service being received at many airlines and airports as staff shortages and supplier issues cause delays, cancellations, lost luggage and more.
IATA numbers this week showed that the forecast airline industry losses are improving and profitability will return sooner than expected, and with airlines reporting record bookings for the summer, the increases in pay and incentives linked to performance are expected in a rising demand environment. However, shareholders are passengers too and see the bad publicity and fulfilment challenges as detrimental to the recovery with many voting against executive pay rises. In the case of IAG, shareholders attempted to reject the incentive scheme increase but have been unsuccessful with all the resolutions proposed at the airline group’s annual general meeting being approved.
Pay ratios – the discrepancies between CEO pay and median for all other staff – are also being published in the press and are being used by unions to campaign for inflation-matching wage increases, with strikes on the table if they don’t meet their demands. The cost environment is going to be a challenge for everyone but airlines will need to pay more to both satisfy their existing workers, while also attracting more staff to ensure they can fulfil their bookings and their performance targets for 2022 and into 2023. The fallout from the pandemic and the war in Ukraine is being felt keenly at the same time that the central banks are turning off the taps following the global financial crisis –governments may be out of ammunition to help fix the high inflationary environment any time soon. Airlines need to prepare for more pain ahead. Maybe performance-related incentives are not such a dumb idea in such a challenging environment. But please have your say and drop me a line at victoria@airlineeconomics.com